Archive for 'flood insurance'

Earlier this year, your real estate market was devastated with the implementation of the new flood insurance program. Previously, any home in a flood plain, that had a federally insured loan (most do), were required to have flood insurance, no exceptions,

Prior to January 2014, if a buyer got a federally back home loan and borrowed $125,000, their annual flood insurance policy premium is roughly 1% with an annual premium of $1,250 in addition to all of the other regular insurance, etc.

I first learned of this mess when my wife Beth and I had dinner with our next door neighbors, Heidi and Sean. When we met them at the restaurant on a Tuesday evening, they were furious, angry, frustrated and shocked.

Heidi and Sean were selling their previous home, had a contract on it and were scheduled to close on “this friday.” (we are in the restaurant on Tuesday evening.) Heidi just learned on Tuesday afternoon, 3 days before the scheduled closing that their buyer’s already approved loan was being cancelled due to the new flood insurance program that went into effect around January 10th or so.

Heidi and Sean’s annual flood insurance premium for their previous home they were selling was about $2,000.

Their new buyer’s flood insurance premium for the same house, jumped to $23,000 a Year because of the new changes. WOW! No wonder their buyer’s loan was cancelled.

As you can see, there was no way they could sell their previous home and they rented it for the time being.

This rocked my local market big time and killed many pending real estate transactions and it also did the same for many communities across America.

UPDATE: with a lot of uproar from the real estate industry, our federal government recently passed a bill making some modifications to the federal flood insurance program.

What triggered the original fiasco is the turning off of federal government “subsidizing” flood insurance premiums. Insurance experts explained that the flood insurance premiums were never increased. The extreme price increase occurred when the federal government stopped the funding of flood insurance premiums.

The recently passed new modification to the federal flood insurance program postpones terminating federal assistance in 5 years.

This means for right now, you are ok, but only for 5 years, then the mess is triggered again.

TIP: If you or your family members or loved ones own real estate in a flood plain, you might want to do some more homework on your local market and give serious consideration to selling now before the bomb drops in 5 years.

My personal concern about all of this flood plain and insurance changes is not so much for the investor, like me and you, but just think about the poor old homeowner. A homeowner who worked their whole life at a job, who considers their home an investment, and in one fell swoop, our federal government just causes these folks to go belly up.

What if these homeowners live on a pension and their flood insurance premium skyrockets from $1,200 a year to $12,000 annually. They are sunk. They can not sell because the value of their home has tanked.

And these homeowners are somebody’s mom and dad, aunt and uncle, brother, sister, and so on.

Last Tuesday, my next door neighbors invited me and Beth out for dinner at a new upscale restaurant in the “NuLu” part of downtown Louisville. (little did we know the University of Louisville basketball team had a game to play at the YUM center. Traffic was horrible.) They wanted to pick my brain about real estate investing and setting up Self Directed Roth IRAs for their two young sons.

This restaurant takes pride in all menu items are from local producers, including beer and wine. For the first time in over 25 years, I had myself an ice cold Pabst Blue Ribbon beer. It tasted pretty good, but not good enough for me to switch back from an occasional Bud Select here and there.

BLINDSIDED!

My next door neighbors, Heidi and Sean arrived and were visibly upset. They proceeded to tell me about the bad news they received that morning.

Heidi and Sean were selling their previous home, a nice home with a great view overlooking the Ohio River. After almost of year of trying to sell this unique river home, they finally got a buyer to purchase their previous home for approx. $225,000 AND their closing was scheduled to place this Friday.

Just 4 days before their scheduled closing Heidi gets a phone call reporting their buyers can not qualify now for their previously approved loan.

HERE’s WHY

Because of some new, hidden until now, federal regulations involving flood insurance and FEMA, the flood insurance on this property had increased almost 1,000% overnight!

Yes, when Heidi and Sean owned this home, their flood insurance was about $3,000 a year.

Get This!

Their Flood Insurance Premium is $23,000.

Absolutely Insane!

This can not be true!

What in the world is going on?

What about Real Estate Investors and Homeowners?

What gets my goat is how this new flood insurance pricing program “snuck up” on me, you, Heidi and Sean.

FYI, Heidi owns not one, but 3 Keller Williams offices. One in Louisville, another in northern Kentucky, and a third in southern Indiana.

Heidi is very involved in the real estate market and she was blindsided by this. Not a word in advance from our market industry watchdog groups. (I won’t name any group, but you know what I mean)

Here is the link from National Association of Realtors on this new flood insurance reform act

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